Question

The table below shows the expected rates of return for three stocks and their weights in some portfolio:

Stock A | Stock B | Stock C | ||

Portfolio weights | 0.3 | 0.2 | 0.5 | |

State | Probability | Expected returns | ||

Recession | 0.2 | 0.08 | 0.03 | 0.14 |

Boom | 0.8 | 0.13 | 0.05 | 0.15 |

1. What is the portfolio return during a recession?

2. What is the expected portfolio return?

3. What is the standard deviation of the portfolio returns?

Answer #1

We know the following expected returns for stocks A and B, given
different states of the economy:
State (s)
Probability
E(rA,s)
E(rB,s)
Recession
0.2
-0.05
0.05
Normal
0.5
0.1
0.08
Expansion
0.3
0.18
0.12
1. What is the expected return for stock A?
2. What is the expected return for stock B?
3. What is the standard deviation of returns for stock A?
4. What is the standard deviation of returns for stock B?

Expected return and standard deviation for stocks A and B are
shown in the table below.
State of
Economy
Probability
of state of
the economy
Rate of return if state occurs
Stock
A
Stock
B
Recession
.2
-.10
.15
Normal
.5
.20
.22
Boom
.3
.60
.29
Expected return
.26
.227
Standard Deviation
.25
.05
1. Refer to the information in the table above. Suppose you have
$50,000 total. If you put $30,000 in Stock A and $20,000 in Stock...

Based on your research, the following states of economy,
probabilities of states, and returns are forecasted for Stock A and
Stock B:
Return if State Occurs
State of Economy
Probability of state
Stock A
Stock B
Recession
0.65
-0.15
-0.2
Normal
0.3
0.13
0.14
Irrational exuberance
0.05
0.2
0.29
a. What is the expected return on Stock A?
b. What is the expected return on Stock B?
c. Your research also indicates that stock A’s beta is greater
than stock...

Suppose an economy has three states: boom, normal, and
recession. Assume that the probability of a boom state is 0.2, a
normal state is 0.5, and a recession state is 0.3. And there are
three stocks in this economy, called Alpha, Beta, and Gamma
respectively. The return performance of these stocks has been
summarized by the following table:
Alpha
Beta
Gamma
boom
15%
28%
1%
normal
6%
12%
3%
recession
-12%
-30%
20%
(Please show your intermediate processes, instead of...

Based on your research, the following states of economy,
probabilities of states, and returns are forecasted for Stock A and
Stock B:
Return if State Occurs
State of Economy
Probability of state
Stock A
Stock B
Recession
0.65
-0.15
-0.2
Normal
0.3
0.13
0.14
Irrational exuberance
0.05
0.2
0.29
a. What is the expected return on Stock A?
b. What is the expected return on Stock B?
c. Your research also indicates that stock A’s beta is greater than
stock...

Stocks A and B have the following returns:
Stock A
Stock B
1
0.08
0.04
2
0.04
0.03
3
0.13
0.04
4
-0.03
0.03
5
0.07
-0.05
Stocks A and B have the following returns:
Stock A
Stock B
1
0.080.08
0.040.04
2
0.040.04
0.030.03
3
0.130.13
0.040.04
4
negative 0.03−0.03
0.030.03
5
0.070.07
negative 0.05−0.05
a. What are the expected returns of the two stocks?
b. What are the standard deviations of the returns of the two
stocks?
c....

State of Economy
Probability of State
Return on Asset A in State
Return on Asset B in State
Return on Asset C in State
Boom
0.35
0.04
0.21
0.3
Normal
0.5
0.04
0.08
0.2
Recession
0.15
0.04
-0.01
-0.26
a. What is the expected return of each
asset?
b. What is the variance of each asset?
c. What is the standard deviation of each
asset?

Consider the following scenario analysis:
Rate of Return
Scenario
Probability
Stocks
Bonds
Recession
0.3
-6
%
14
%
Normal economy
0.5
15
11
Boom
0.2
26
5
Assume a portfolio with weights of 0.60 in stocks and 0.40 in
bonds.
a. What is the rate of return on the portfolio
in each scenario? (Enter your answer as a percent rounded
to 1 decimal place.)
b. What are the expected rate of return and
standard deviation of the portfolio? (Enter your...

Given the following information, what is the expected rate of
return and the standard deviation for this stock?
State of Economy
Probability of State of Economy
Rate of Return
Boom
0.3
0.23
Normal
0.65
0.14
Recession
0.05
-0.36

2. The table below shows a portfolio
of stocks. Using the information on the table, perform the
following tasks. (30 points)
1. Stock
2.
Total Value
3.
Weight
Stock Return
Recession
(60%)
Normal
(40%)
MRK
$ 4,600
15%
10%
VZ
$ 4,400
1%
15%
AAPL
$ 7,500
8%
18%
CAT
$ 2,500
-2%
5%
FDX
$ 1,000
3%
12%
Complete column 3 using the total value to compute the
weights.
Calculate the overall expected return of the portfolio assuming
that...

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